SMM Evening Comments (Jan 12): Shanghai Nonferrous Metals Closed Mostly with Large Gains amid Gentle Tone of Powell

SHANGHAI, Jan 12 (SMM) – Shanghai nonferrous metals closed mostly with large gains as the speech delivered by US Fed President Powell was less hawkish than other Fed officers.

Shanghai copper advanced 2.3%, aluminium added 1.01%, lead rose 0.69%, zinc dropped 3.06%, tin jumped 4.38%, and nickel gained 3.82%.

Copper: The most-traded SHFE 2202 copper closed up 2.3% or 1600 yuan/mt at 71170 yuan/mt, with open interest up 10668 lots to 120293 lots.

On the macro front, US Federal Reserve president Powell said at the hearing on Tuesday that the Fed has not decided on dialling back the US$ 9 trillion balance sheet, and he was not eager to imply an interest rate hike in March either like other hawkish officers. As such, the US dollar index dropped, and the non-ferrous metals prices rose broadly.

In terms of oil, the prices surged on Tuesday amid supply tensions when data showed that the US crude inventories dropped 1.1 million barrel last week. On the demand side, Powell indicated promising demand outlook in the following several quarters, after the COVID variant-related bases stopped rising steeply.

Tonight, the market shall watch the US CPI as well as the EIA crude inventory changes in the week of January 7.

Aluminium: The most-traded SHFE 2202 aluminium closed up 1.01% or 215 yuan/mt to 21605 yuan/mt, with open interest down 8084 lots to 184594 lots.

On the supply side, the operating aluminium capacity is likely to rise further in January. On the demand side, the operating rates in January are likely to fall due to Chinese New Year holiday factor and resurging COVID. The inventory may see a pivot in late January. The aluminium prices kept rising on falling inventory, and are approaching the high level. Hence the market shall watch the potential exit of longs for risk aversion.

Lead: The most-traded SHFE 2202 lead closed up 0.69% or 105 yuan/mt at 15310 yuan/mt, with open interest down 2973 lots to 39695 lots.

On the fundamentals, the lead supply side showed no significant changes, and the downstream battery plants purchased on dips. The market transaction was lacklustre. The goods circulating in the market were limited as the delivery of SHFE 2201 is imminent. The primary and secondary lead traders were both less interest in making shipments.

Zinc: The most-traded SHFE 2202 zinc closed up 3.06% or 740 yuan/mt at 24885 yuan/mt, with open interest down 2196 lots to 73697 lots.

On the macro front, the YoY growth of CPI and PPI in December both dropped. China also released the M2 money supplies and social financing in December, and the growth was in line with nominal economic growth, hence the market sentiment was relatively stable.

On the demand side, the SHFE/LME zinc price ration kept falling, resulting in higher demand for domestic ore, and the TCs of domestic zinc concentrate dropped further. The supply from the mining side is still expected to be tight, pressuring the smelters with potentially higher costs.

Tin: The most-traded SHFE 2202 tin closed up 4.38% or 13020 yuan/mt at 310520 yuan/mt, with open interest up 929 lots to 43006 lots.

On the fundamentals, the warrants inventory kept rising, and the spot prices rose along with the broad market amid tight supply. The shipments, however, were scarce.

Nickel: The most-traded SHFE 2202 nickel closed up 3.82% or 5970 yuan/mt to 162340 yuan/mt, with open interest down 11190 lots to 170248 lots.

Low pure nickel inventory offered strong support to nickel prices, and the futures market sentiment was also quite bullish. LME nickel inventory continued to drop slightly to less than 100,000 mt, the lowest since December 2019.